Last week, the United States Supreme Court in Murr v. Wisconsin issued a key regulatory takings decision which creates a new multifactor balancing test to determine whether two adjacent properties with single ownership could be considered a larger parcel.  In a 5-3 decision, the Court found that the properties were a single parcel and because the owners were not deprived of all economically viable uses of their property they could not establish a compensable regulatory taking.

The Murr Family owned two lots adjacent to a river.  A cabin was built on one of the lots, while the other lot remained unimproved.  The Murr Family attempted to sell one of two lots.  Although each lot was over an acre, due to their topography, each lot had less than one acre suitable for development.  State and local regulations prevented the use or sale of adjacent lots under common ownership as separate building sites unless they have at least one acre of land suitable for development.  The Murr Family applied with the St. Croix County Board of Adjustment (“Board”) for approval of a variance, which the Board denied.  The state court affirmed, finding that the local ordinance effectively merged the lots.  The unimproved lot, therefore, could not be sold or developed separately, though the property could continue as a residential use with a single improvement to extend over both lots.

In finding that the property was a single parcel, the Supreme Court laid out the following factors:

  1. the treatment of the property, in particular how it is bounded or divided, under state and local law;
  2. the property’s physical characteristics, including the physical relationship of any distinguishable tracts, topography, and the surrounding human and ecological environment; and
  3. the property’s value under the challenged regulation.

The Court found that all three factors pointed to the lots being evaluated as a single parcel.  Specifically, the merger of the lots under state law “informs the reasonable expectation that the lots will be treated as a single property.”  Second, the terrain and shape make it reasonable to expect their range of potential uses may be limited.  The property’s location adjacent to a river would also put the owners on notice of potential state, federal and local law regulations.  Third, the restriction on using the individual lots provides a benefit of increasing privacy and recreational space that can benefit the other property.  The Court also concluded that because the property could still be used as a residential property, the owners have neither been deprived of all economically beneficial use of their property under Lucas v. South Carolina Coastal Council (1992) 505 U.S. 1003, nor have they suffered a taking under Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104, 115-116.

The dissent argues that the State law should define the boundaries of distinct parcels of land, and those boundaries should determine the “private property” at issue in regulatory takings cases.  States may define those plots differently, whether using metes and bounds, government surveys, recorded plats or subdivision maps.

The Supreme Court’s undertaking may have implications across the Country as the Court’s fluid multifactor test appears to give courts more discretion in determining what constitutes the “larger parcel.”  And by looking at the government’s interest, as the dissent explained, the new test may result in less favorable outcomes for property owners.  The “larger parcel” inquiry is only the first step in determining whether a taking has occurred.  The court must also analyze the regulation under Lucas or Penn Central, which provide two other seemingly fluid and discretionary tests that also look at the government’s interest when determining whether a regulatory taking occurred.